Manufacturers to raise prices to mitigate cost pressures

A survey has found that rising cost pressures, labour shortages and uncertainty over Brexit are impacting the manufacturing and services sectors.

The quarterly economic survey, carried out by the British Chamber of Commerce (BCC) found that UK firms are facing a rise in labour shortages, as four-fifths (81%) of manufacturers reported difficulties in finding skilled workers in the final months of 2018 – the highest percentage since the survey began in 1989.

The survey of 6,000 firms, collectively employing over 1m people in the UK, found that labour shortages have also been felt in the services sector, with 70% of firms reporting difficulty in recruiting staff with the right qualifications or experience.

Cost pressures facing firms are also on the rise, with 81% citing the cost of raw materials as a source of pressure, and as a result manufacturers are expecting to raise their prices.

Persisting Brexit uncertainty and rising cost pressures were contributing to the subdued economic conditions across the sectors and suggest higher inflation over the near term, said Suren Thiru, head of economics at the BCC.

Duncan Brock, group director at CIPS, said the findings echo those of purchasing managers in manufacturing and services in the latest IHS Markit/CIPS UK Purchasing Managers’ Indexes.

He said: “In the manufacturing sector, though overall activity and new orders rose to a six-month high, the underlying reasons for this superficial improvement were more bleak. Improvements in both were mainly about businesses preparing for Brexit and attempting to mitigate potential supply chain disruption by building up stocks of raw materials and finished goods. Job hiring also slowed in December after November’s high and the battle for talent was ever-present.”

He added: “In the services sector, subdued growth conditions remained with business activity reported at one of the slowest rates seen in the last two-and-a-half years, reflecting the Chamber of Commerce figures. Job creation eased to a 29-month low. The rise in input costs for service businesses was overwhelmingly linked to higher operating costs as a result of increased salaries as skilled staff were hard to find.

“If you package all this data up collectively, it points to a gloomy picture about the UK economy’s performance in the year ahead.”

Another survey conducted by manufacturer’s organisation EEF and insurer AIG found that while firms expected to see growth in exports and employment, confidence was lower than a year ago, especially regarding prospects for the UK economy.